Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Uncle Sucker's Trade Deficit worsened in November
The Commerce Department reported this morning that, overall, the U.S. seasonally-adjusted trade deficit deteriorated from $42.1 billion in October to $48.7 billion in November. These worsening trade balances subtract from U.S. economic growth but add to the growth of our trading partners. They are being produced by the governments of America's trading partners, especially the governments of South Korea, China and Japan.
In 2012, President Obama signed a "free trade" agreement with South Korea. The agreement lets South Korea continue to manipulate the won-dollar exchange rate in order to increase market share of Korean products and reduce market share of U.S. products in U.S. and Korean markets. The Federal Reserve reported that South Korea spent 4.24% of its GDP on currency manipulations between September 2009 and September 2010.
The agreement went into effect in March 2012. Ever since, the U.S. merchandise trade deficit with South Korea has deteriorated. descending to $16 billion for the 12 months ending in November as shown in the graph below:
According to the Asian Development Bank, the People's Bank of China added $669.8 billion worth of foreign assets to its reserves in 2011. Partly as a result of these currency manipulations, Chinese products continue to gain market share vs. U.S. products in world markets.
The Obama administration has tolerated this. Outgoing Treasury Secretary Timothy Geithner issued biannual reports to Congress which pretended that China was not manipulating its currency, rather than take the issue to the International Monetary Fund whose articles of agreement prohibit currency manipulations.
As a result, the U.S. trade deficit with China has deteriorated steadily throughout the Obama administration. For the 12 months ending in November, the U.S. merchandise trade deficit with China was a negative $314 billion and worsening steadily, as shown in the graph below:
The U.S. trade deficit with Japan has not been getting worse in recent years, but that is about to change. Japan's new Prime Minister is demanding that Japan's central bank resume its mercantilism, Ambrose Evans-Pritchard wrote on January 1:
So, into the foreseeable future, Uncle Sucker will continue to give away its industries and its potential economic growth to all those governments who wish to take them.
Journal of Economic Literature:
Atlantic Economic Journal: